Download The Plight of Chinese Export-oriented SMEs in the Financial Crisis

The Plight of Chinese Export-oriented SMEs in the Financial Crisis
and the Countermeasures
LI Minghui
School of Management, Shandong University of Technology, P.R. China, 255049
Business School, University of Shanghai for Science and Technology, P.R. China, 200093
[email protected]
Abstract: The financial crisis results in a considerable impact on Chinese economy and enterprises, and
export-oriented SMEs (Small and Medium-sized Enterprises) bear the brunt. This paper analyzes the
plight of Chinese export-oriented SMEs in the financial crisis, which mainly reflects in export growth
rate decline, RMB appreciation, financing difficulty increasing, lacking core technology and product
cost rising. The paper also puts forward countermeasures separately from government and SMEs. The
countermeasures of government are increasing the fiscal support and reducing taxation, offering
financing support and building SMEs’ public service platform. The countermeasures of export-oriented
SMEs are mainly exploring new markets at home and abroad, reducing the cost of the exported products
and adhering to independent innovation based on introduction of technology.
Keywords: The financial crisis, Export-oriented SMEs, Plight, Countermeasures
1 Induction
According to statistics, Chinese SMEs were more than 42 million by the end of 2007. In 2006, Final
products and service value, total export and tax revenue turned over to the state that SMEs had created
accounted for 58.5%, 68.3% and 50.2% of the whole country respectively, and the patents of SMEs
accounted for 66% of the whole country. SMEs have already become an important power in Chinese
economy and innovation. SMEs have offered urban more than 75% of the employment opportunities,
and become a main channel to solve employment problem. SMEs have made enormous contribution for
Chinese economy.
2 The Plight of Chinese Export-oriented SMEs in the Financial Crisis
The financial crisis that is triggered by the American sub-prime crisis has brought about the severe
challenges to the global economic development. It causes a bad influence on the development of China’s
economy and enterprises. Because of the factors such as the fund, technology and scale, the impact that
export-oriented SMEs receive is great. The financial crisis worsens the environments of production and
management of export-oriented SMEs, and makes a lot of export-oriented SMEs facing stopping
production or going bankrupt. Especially the export-oriented SMEs in the pearl trigonometry area and
Zhejiang province are facing the unprecedented pressure. At present, the plight of Chinese
export-oriented SMEs mainly reflects in following several respects.
，
2.1 Export growth rate decline
The financial crisis leads to the fact that American economy decelerates and demand declines. Demand
decline leads to consuming goods, capital goods, agricultural and mineral products and other raw
materials that Ameri1can imports from the markets of the overseas reducing. The financial crisis still
influences American expectancy to the economic growth prospect in the future, thus the people reduce
This research was supported by the National Soft Science Research Project under Grant 2006GXQ3D155 and the
Soft Science Project of Shandong Province under Grant B200647.
561
present consumption. The total export volume of Chinese products to American market accounts for
nearly 50% of Chinese total export volume. In January-July 2008, the export volume of Chinese
products to American market was 140.39 billion U.S. dollars, increasing 9.9% compared with the same
period of last year, export growth rate sliding 8.1 percentage points compared with the same period of
last year. At the same time, the markets of European Union and Japan to the demand of Chinese goods
would drop under the influence of the financial crisis. The markets of European Union and Japan can
not become the substitutions when American share drops. Chinese economy based on export-oriented
economy would fully expose the question of product surplus. Therefore, Chinese export-oriented SMEs
would inevitably suffer serious influence and face the predicament of product surplus and export.
2.2 RMB appreciation
RMB has been going a slight upward trend from the exchange rate reform. U.S. dollar is the world’s
reserve and liquidity means. Because of the status of America in the international financial institutions
and their own economies of scale, the issuance of U.S. dollar does not accept restrict of discipline after
the collapse of the Bretton Woods system. The special status of U.S. dollar causes a large number of
trade deficit and excessive U.S. dollar issued. U.S. government has adopted a more loose monetary
policy to weak U.S. dollar to reduce the negative effect of the financial crisis. In this way, American
Federal Reserve Committee is reducing the interest rate constantly, and U.S. dollar is going weak. The
interest difference between RMB and U.S. dollar is being further widened, as leads to the fact U.S.
dollar capital flows into the Chinese market continuously to further strengthen the pressure of the RMB
appreciation. RMB appreciation will bring about an adverse competitive environment to Chinese
export-oriented SMEs. Export prices of Chinese products are improved relatively. Exports and profits of
export-oriented SMEs will be lowered. Chinese textile and garment, household appliances, toys
processing, communications equipment, computer and other processing industries access to a certain
degree of comparative advantage in the international market mainly by low-cost. RMB appreciation will
greatly affect Chinese exports of these products and these industries’ profit. From May of 2007 to the
present, U.S. dollar has devalued RMB more than 10%. This means that the cost of export product has
raise 10% for RMB appreciation. It causes loss of some SMEs, therefore these SMEs stop exporting.
2.3 Financing difficulty increasing
Although China’s capital market has been made larger, SMEs are usually missed. SMEs generally rely
on bank loans to solve liquidity. The financial crisis leads to an international economic downturn, and
the prices of domestic raw materials rise too fast. Many SMEs purchase raw materials only by cash
transactions, as affects the normal flow of business capital and the long-term investment demand.
Funding chains of many SMEs break. In the context of the current financial crisis, SMEs face greater
uncertainty. When the commercial banks implement “having maintain and pressure, distinguishing
treatment” policy, they make an extreme choice that SMEs become objects of credit compression,
regardless high-quality or not.
2.4 Lacking core technology
At present, the Chinese export-oriented SMEs lack their own brands. They produce either sticking to
brand, or their own brands with little competitiveness of market. Chinese export-oriented SMEs are
mostly in the bottom of the smiling curve, while the both ends with high value-added are design and sell
controlled by foreign enterprises. Chinese export-oriented SMEs mainly yield primary products and
labor-intensive processing products, which lack high-tech and high value-added. Although the export
number of Chinese goods accounted for 10% of global total, the lack of core technology makes a lot of
export-oriented SMEs not reach the required level of profits. It can be seen that dilemma of
export-oriented SMEs not only includes troubled external economic environment and poor financing
channels, but also includes technical problems. To achieve technological innovation and industrial
upgrading has become an important task for export-oriented SMEs going out of the woods.
562
2.5 Production cost rising
U.S. dollar going weak influences the prices of large items at international market, such as crude oil and
iron ore. The raise of these goods’ prices improve costs of exported products. The new law of work
contract norms rights and interests of laborers. The new law of work contract has less influence on
SMEs with good system, high technology, high profit, but has great impact on labor-intensive SMEs. In
2008, the recruitment cost of enterprises rose by about 10% compared with the same period of last year.
The recruitment cost of some labor-intensive SMEs even increased by 20%-30%. Production cost rising
will lowered the competition advantage of SMEs in the market.
3 Countermeasures
If Chinese export-oriented SMEs would keep sustainable development in the financial crisis, they must
depend on government support and their own efforts.
3.1 The support of the government
3.1.1 Increase the fiscal support and reduce taxation
Now, increasing the fiscal support and reducing taxation for SMEs is a usual approach widely used by
the countries of the world to deal with the financial crisis. Chinese government should give
export-oriented SMEs the fiscal and taxation support. Chinese government adds 4 trillion Yuan
investment this year, which will be appropriately tilted in export-oriented SMEs to ease the tremendous
pressure that funding chains break. The government purchases the products of export-oriented SMEs
with the foreign currency to make up reducing order of western countries to help export-oriented SMEs
normally produce. The rates of return tax of some export products should be improved to reduce the
taxation of export-oriented SMEs. This can help export-oriented SMEs to lighten the upward pressure of
the cost. The policy of reduction tax can indirectly reduce the non-performing loan incidence of the
bank, and promote the fund to effectively flow back in real economy. Looking from the medium and
long term, reducing taxation can also improve the investors’ confidence to achieve the purpose of
financing for export-oriented SMEs. Central Government should slow the pace of RMB appreciation
down. Give export-oriented SMEs full time to take measures to deal with exchange rate risks. Prevent
great ups and downs in foreign trade, and promote stable development. Besides, Chinese government
should slope the procurement of the government to the SMEs.
3.1.2 Offer financing support
In the financial crisis, export-oriented SMEs are facing temporary difficulty. But some export-oriented
SMEs with better credit record and basic condition should be paid credit aid. Increase loan number for
these SMEs, reduce the loan interest, and extend time limit of refund. Financing characteristics of SMEs
embody in needing little fund and financing high frequency. At present, small loan companies and
guarantee companies of normal operation are easy to develop into small and medium regional banks,
which take folk capital as an object and specially service SMEs. Small loan companies and guarantee
companies of normal operation should be encouraged. Government should unlock the financing channel
of the existing small loan companies and legalize the folk finance.
3.1.3 Build SMEs’ public service platform
According to the overall industry arrangement and the industry characteristics of the country,
government should organize enterprises and research institutes, universities to altogether build SMEs’
public service platform with integrated function such as measuring, testing, researching and developing,
training, consultation, etc. The government should strengthen infrastructure construction, advance
related facility construction of sewage treatment plant, transformer substation. Improve the bankrupt
mechanisms of enterprises to remove the worry of the operator because of managing improperly.
3.2 SMEs’ countermeasures
3.2.1 Explore new markets at home and abroad
563
Firstly, the export-oriented SMEs should seek new domestic markets. Markets of the low and middle
ends at home have the space of great development. The export-oriented SMEs should strive to find a
channel to new customers in order to defuse the crisis. Chinese macro-control policy has made a
significant adjustment to implement a proactive fiscal policy and a moderate easing of monetary policy.
The funds of 4 trillion Yuan will be used to start a strong domestic demand and promote stable
economic growth. The export-oriented SMEs should grasp the opportunities to obtain more funds and
markets.
Secondly, actively explore the pluralistic overseas markets. At present, the export market of our country
mainly concentrates on great trading nations such as U.S.A., Japan. Once the economic crisis takes place
in these countries, the export of our country will receive the negative effect. Therefore, we must adjust
the export markets, optimize the structure of export markets, and explore a wide range of overseas
markets. In recent years, the economic development of Latin America, South Asia, South Africa and
Turkey etc is very fast. The markets in these countries have more and more import demand. Chinese
export-oriented SMEs should pay close attention to these countries.
3.2.2 Reduce the cost of the exported products
In the context of RMB appreciating and the prices of raw materials rising, the export-oriented SMEs
should transfer the orders of the low added value from the developed coastal regions to the central and
western regions to lower costs. The export-oriented SMEs should reduce inventory of finished,
semi-finished goods and raw materials in order to increase liquidity. The export-oriented SMEs should
cancel unnecessary expansion plans not to carry out marketing investment of large-scale.
3.2.3 Adhere to independent innovation based on introduction of technology
Innovation is the source of the vitality of enterprises. In the financial crisis, the export-oriented SMEs
that are bankrupt most lack core technology. This is an inevitable result of the market discipline. The
impact to the export-oriented SMEs with the core technology is not great.
When the enterprises have sufficient R&D resources, the original independent innovation is more
appropriate. As we know, R&D resources of the SMEs are not sufficient. The SMEs had better not take
the original independent innovation.
With regard to the relationship between imitation and innovation, the academic have debated for a long
time. Gapper (2005) believed that Chinese technology R&D should find a middle way between
independent research and imitation that the existing results should combine with theirs own creativity
through “smart imitate”. It not only can avoid the piracy accused, but also avoid the development trap of
innovative products that always start from scratch. Gapper referred to the middle way is the independent
innovation based on introduction of technology.
The essence of independent innovation based on the introduction of technology is to combine the
originally technical capacity of enterprise with the technology and know-how contained the external
imported technology projects. So the new core technology of the enterprise would be built and fostered.
Compared to the original independent innovation, independent innovation based on introduction of
technology will make developing countries greatly reduce the use of the funds required for the original
innovation and potential risk of failure. More importantly, the gap between developed countries and
developing countries can be greatly reduced through the introduction of technology to carry out
digestion and absorption and re-innovation. The core competitiveness of Chinese enterprises would be
improved.
4 Conclusion
Although Chinese export-oriented SMEs meet many difficulties in the financial crisis, they should
actively overcome the difficulties by government support and their own efforts. Chinese export-oriented
SMEs would grape the opportunities in the financial crisis to achieve the further development.
564
References
[1]. Gapper J.,China needs to get copy smart[J].Financical times,2005,(1).
[2]. Trond Age Langvik, Frode R. Johansen, Fred allisen, Steinar Normann, and Johan Thoresen,
Innovation and regional development, AI & Soc, pp. 384-406, November 2005.
[3]. CAI Minwen. Research on the way of innovation for the minor exporting enterprise in Zhejiang.
Journal of Zhejiang Science and Technology University,9(2007), p603 606(in Chinese)
[4]. ZHAO Wenjun, Analysis of resolving strategies in the international financial crisis. Consume
Guide,5(2009) , p47 48(in Chinese)
[5]. HU Zhenyu, JIN Lingyun. The influence of RMB appreciation on Chinese export-oriented SMEs
and the Countermeasures. Enterprise Economy,12(2008), p169 171(in Chinese)
[6]. PENG Yanfang. The impact of the global financial crisis on Chinese SMEs. Business China,
4(2008), p39 41(in Chinese)
[7]. HU Qibing. Strategies of export-oriented SMEs under the conditions of the RMB appreciation.
Economic Review, 11(2008), p95 97(in Chinese)
[8]. DONG Jingru, WANG Youjian. The impact of exchange rate risks in the financial crisis to
companies and the advice. Hebei Finance,6(2009), p60 61(in Chinese)
～
～
～
～
～
～
565